FX Update: JPY intervention effects have a short half-life. FX Update: JPY intervention effects have a short half-life. FX Update: JPY intervention effects have a short half-life.

FX Update: JPY intervention effects have a short half-life.

John Hardy

Head of FX Strategy

Summary:  A huge bout of volatility on Friday as apparent intervention took USDJPY down several figures after the aggravated rise above 150.00. US treasury yields likewise reversed course Friday and the US dollar was taken down a few notches as this brightened sentiment. But as with the prior round of JPY intervention, the half-life seems very short, and the US dollar is already quickly rebounding this morning again after a small additional drop overnight.

FX Trading focus: The half-life of JPY intervention is short

A bout of apparent intervention materialized Friday after a further acceleration to the upside in USDJPY to almost 152.00, as that move coincided with the latest aggravated rise in US treasury yields and after the initial break of 150.00 failed to spark intervention as many though it would. The USDJPY move took the USD down several notches elsewhere as well, as treasury yields also retreated and risk sentiment improved suddenly. Overnight, another apparent round of intervention took the price action back below 146.00 briefly before the exchange rate rebounded above 149.00, or about where it was trading last Wednesday. As with the prior round of intervention when USDJPY was bid up above 145.00, it seems the half-life of the impact from intervention is very short indeed.

Elsewhere, sterling has tried to muster a rally on what looks to be a quick path for Rishi Sunak to become the next UK prime minister already this afternoon. From here, the Bank of England and the (presumably) Sunak-led government will follow the fiscal austerity script to avoid the kind of market melt-down we saw in the wake of the Kwarteng “mini-budget”, but that doesn’t mean we should expect a substantial sterling rally. Tight fiscal policy is normally a currency negative and will aggravate the worsening of the UK’s economic outlook, meaning that the Bank of England will be that much more reluctant to take yields as high as the market is currently pricing they will (which will in turn likely weigh on the currency in the medium term.) The market has priced the BoE to reach a  5.00% policy rate by the May meeting next year. Both of the flash October PMI’s for the UK surprised on the negative side, with Manufacturing at 45.8 vs. 48.9 on Sep, and Services at 47.5 vs. 50.0 in Sep.

USDJPY some apparent further intervention that briefly took USDJPY below 146.00 overnight, we have already rebounded to levels that traded as recently as mid-last week. From here, we might expect to see some bottled up price action if we re-approach the 152.00 area as the market knows that intervention will arrive again at some point – although a “learned behaviour” from prior experience might be that intervention will only arrive in force again at some higher level – perhaps 160.00? Just as long as it takes a bit of time to get there… the BoJ/MoF have argued that JPY levels are less material than whether the currency is falling at an “excessive” pace. In the meantime, only a material retreat in US treasury yields below, for example, that key 4.00% level in the 10-year US yield benchmark can bring some offsetting support for the JPY. Unlike the last time the Bank of Japan intervened in markets, it has been noted, they are playing coy on whether intervention has taken place and are willing to do it outside of Japanese trading hours, clearly taking aim at foreign speculation in JPY weakness. The Bank of Japan meets this Friday.

Source: Saxo Group

Fed downshift at November meeting? The WSJ’s point-man on the Fed, widely considered to have solid access to Fed sources, but a minimum an excellent collator of recent Fed communication, argued in a piece released this Saturday that the Fed may begin to downshift from the 75-basis point hike pace, perhaps already after the November 2 meeting next Wednesday. Timiraos notes that some Fed officials like dove Vice Chair Brainard are more cautious, suggesting a 50 basis point hike in December and then eventually a pause in the tightening regime at some point early next year to offer time to assess the impact of the rapid pace of rate hikes, which took the Fed Funds rate from 0-0.25% as late as March of this year to the projected 3.75-4.00% priced in for the November 2 meeting. But he also notes the variety of opinions among Fed officials, some of whom are in favour of carrying on with the current pace of tightening and not wanting to signal any change in resolve as long as inflation persists anywhere near current levels. As he notes, the difficulty will be in signaling a slowdown in tightening even as inflation remains well above acceptable levels. Certainly, the data won’t move quickly enough by the December meeting for the Fed to be able to declare “mission accomplished”. I still suspect that the Fed “turn” will occur because ongoing QT creates some level of unacceptable dysfunction in the US treasury market that requires liquidity provision. Last week, it felt like we were getting close…

Finally, the USDCNH move also deserves as much as attention as we can spare at the moment after the market gave the thumbs down to the leadership shuffles at the recent party congress, as all factions not loyal to Xi Jinping were removed from the key top political posts at the weekend. The Hang Seng index was down over 6% overnight, worsening its recent slide, and the renminbi lost considerable ground, posting a rare 1% down day today against the greenback, which took USDCNH to a new record high since the creation of the off-shore tradable yuan and since early 2008 for USDCNY.

Table: FX Board of G10 and CNH trend evolution and strength.
Watching for sterling performance to fade broadly from here, if without the crazy drama we saw in late September. Elsewhere, note the broad CNH weakness – how hard will China move to defend the impression that the currency is devaluing here? Wouldn’t be surprised to see AUD remaining weak on CNH fallout.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Quite a reversal we have seen of the Friday rally attempt in AUDUSD – offering fresh confirmation fo the downtrend. Elsewhere, the jury is certainly out on the EURUSD attempt to establish an uptrend -it’s at the tip of a consolidation triangle – watching for direction there – and same goes for GBPUSD.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1230 – US Sep. Chicago Fed National Activity Index
  • 1345 – US Oct. Flash Manufacturing and Services PMI

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.